Frozen out: 8 in 10 retirees can’t access a mortgage solution of any kind

The crisis in the later life lending market is laid bare today by research that shows more than 8 in 10 retired homeowners can’t access a mortgage of any kind that meets their needs.

Stringent affordability criteria that fail to treat pension drawdown as income and rely solely on the lower guaranteed income of a surviving spouse are largely to blame, according to retirement mortgage specialist Responsible Life. The provider also questions why lifetime mortgages are not more widely accepted by providers as an eligible future repayment plan for traditional mortgages and Retirement Interest Only Mortgages (RIOMs).

The findings stem from analysis of data collected by the Retirement Mortgage Service (RMS), Responsible Life’s pilot project to create the UK’s first all-product, whole-of-market retirement mortgage broker.

RMS has been in operation for a year and marks the first time in the UK that borrowers have been able to contact a broker and receive regulated, impartial advice covering every provider and every type of product. Many brokers claim that they provide whole-of-market advice but, historically, that has typically only meant that they consider all products within one or two of mortgage lending’s three main categories – traditional mortgages, Retirement Interest Only Mortgages (RIOMs) and lifetime mortgages.

The aim of the pilot was to identify areas where the retirement mortgage market could better serve consumers. Analysis of RMS data has now revealed that 82.8%1 of over-55s who needed a mortgage or remortgage didn’t qualify for any product of any kind – freezing them out of the mortgage market completely.

This lays bare the mortgage trap awaiting many retired homeowners, who often want to stay in their home but don’t have enough income to cover repayments or, due to their age, are deemed to be borrowing too much in later life, stretching their LTV beyond levels that lenders allow.

Later life lending products currently present a variety of challenges.

RIOMs held great promise when they were introduced in 2018 but only the less generous guaranteed income of a surviving spouse can be taken into account for affordability tests. This dramatically reduces the borrowing power of retired couples at the outset. Many retirees attempt to borrow at ratios of more than ten times their guaranteed income, suggesting there is still a lot of confusion about how affordability in the later life lending market works.

The unintended consequences of so-called pensions ‘freedoms’, introduced in 2015, have only made matters worse because drawdown of pensions haven’t typically qualified as acceptable income under affordability calculations.

Similar challenges are posed by lifetime mortgages. As these products come with the ability to defer and roll-up the interest, they necessarily offer lower Loan-to-Value (LTV) ratios than other products, so many consumers aren’t able to access as much finance as they expect.

The creation of the RMS — the first attempt to provide a one-stop-shop capable of giving holistic mortgage advice to UK borrowers – s a result of Responsible Life’s frustration that huge numbers of consumers were being turned away empty handed by brokers who cannot assist customers by turning to other types of product.

Steve Wilkie, executive chairman of Responsible Life, said:

“Retirees are being frozen out of the mortgage market because they are being sabotaged by affordability rules that are not fit for purpose.

“Retired borrowers should be allowed to show a greater variety of repayment strategies to unlock lending in later life. These should include plans to downsize, pension drawdown and reverting to lifetime mortgage products at the end of a mortgage term.

“Such flexibility would be in the spirit of other financial innovations that have sought to make it easier for the over-55s to navigate retirement, namely pensions freedoms.

“The interaction between products and their features in the later life lending market must be urgently addressed if they are to meet societal needs. The country would feel a net benefit from improvements in these areas.”